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PRESENTATION ON THEORIES OF
LIQUIDITY MANAGEMENT
SUBMITTED TO :- Mrs. GARIMA
SUBMITTED BY :- TANVI SOOD
CLASS :- M.COM II ( SEM. 3 )
ROLL NO. :- 4931
LIQUIDITY RATIOS
CURRENT RATIO
ABSOLUTE LIQUID
RATIO
A) CURRENT RATIO
= CURRENT ASSETS
CURRENT LIABILITIES
B) LIQUID RATIO
= LIQUID ASSETS
LIQUID LIABILITIES
LIQUID ASSETS= CURRENT ASSETS STOCK PREPAID
EXPENSES.
LIQUID LIABILITIES= CURRENT LIABILITIES BANK
OVERDRAFT
THEORIES OF
LIQUIDITY
MANAGEMENT
INTRODUCTION
The basic problem of commercial bank is to have a balance
between liquidity and profitability. A bank deals in the money
of the people. The success of a bank depends upon the
efficiency with which it can provide to its creditors
(depositors) and mainly on the confidence it inspires among
the depositors.
Bank has been able to attract the deposits of the people not
only by promising some returns of their money but also the
amount of liquidity in its assets so that it may be able to
meet any claims upon it in cash on demand. The bank must
ensure adequate cash on demand. The perfect liquid asset
is cash itself because it can fully satisfy the claims of
depositors.
The more cash a bank holds , the more obviously it can offer
cash in exchange for depositors without any difficulty.
THEORIES OF LIQUIDITY
MANAGEMENT
1) Commercial Loan Theory
2) Shift ability Theory
3) Anticipated Income Theory
4) Liabilities Management Theory
1) Commercial Loan
Theory
Originated in England during the 18thcentury.
The theory states ;
A Commercial Bank must provide short term liquidating loans to meet
working capital requirements.
Self-liquidating loans refers to the loans which finance movement of goods
through successive stages of production, transportation, storage,
distribution and finally consumption.
Logical basis of the theory
Commercial bank deposits are near demand liabilities and should have
short term self liquidating obligations.
The bank holds a Principle that when money is lent against self liquidating
papers, it is known as Real Bills Doctrine
The doctrine had some criticisms. They were;
A new loan was not granted unless the previous loan was repaid. Banks
should provide loans before the maturity of the previous bills.
Due to Economic Condition the liquidity character of the self liquidating
loans are affected.
ANY
QUERIES